NatWest Navigates Tariff Turbulence with Strong Profit Growth

NatWest Group’s first-quarter 2025 results underscore its resilience in the face of global trade tensions, as the UK bank posted a 36% year-on-year profit surge while competitors grappled with tariff-related headwinds. With its attributable profit climbing to £1.25 billion and a return on tangible equity (RoTE) of 18.5%, the lender demonstrated operational discipline and strategic focus that set it apart from peers.

Profit Drivers and Balance Sheet Strength

NatWest’s profit jump was fueled by a 15.8% year-on-year rise in total income to £3.95 billion, driven by deposit margin expansion and higher trading income. Its net interest margin (NIM) reached 2.27%, up 8 basis points from the prior quarter, reflecting effective management of funding costs. Cost discipline also shone: operating expenses fell 8.5% sequentially to £1.94 billion, boosting the cost-to-income ratio to 48.6%, a five-year low.

The bank’s balance sheet remains robust, with a Common Equity Tier 1 (CET1) ratio of 13.8%—well within its 13-14% target—while liquidity coverage ratio (LCR) held steady at 150%.

Navigating Tariff Risks

While global peers like Lloyds and HSBC faced tariff-related impairments, NatWest reported no such direct impacts. Competitors such as Standard Chartered saw credit impairments rise 24% year-on-year due to trade tensions, while Lloyds set aside £35 million for US tariff risks in Q1. In contrast, NatWest’s net impairment charge remained stable at 19 basis points of loans, reflecting minimal exposure to tariff-hit sectors.

This divergence stems from NatWest’s focus on UK domestic lending—85% of its loan book is in mortgages and corporate clients—shielding it from the volatility of international trade disputes. CEO Paul Thwaite emphasized this strategy: “Our balance sheet strength allows us to prioritize UK growth while avoiding the risks of global supply chain disruptions.”

Strategic Priorities and Risks

NatWest is doubling down on domestic opportunities. Its acquisition of Sainsbury’s Bank added £2.5 billion in retail loans, reinforcing its position in consumer finance. Meanwhile, its £100 billion climate financing target by end-2025—achieved ahead of schedule—highlights its push into sustainable sectors, which are less exposed to trade-related shocks.

Yet challenges remain. UK business sentiment fell to a three-month low in April 2025, driven by tariff-driven inflation and hiring freezes. While NatWest’s domestic focus mitigates direct risks, a prolonged slowdown could pressure consumer and corporate loan performance. The bank’s CET1 ratio, though strong, may face headwinds from rising risk-weighted assets (RWAs) as it expands lending.

Investor Takeaway

NatWest’s Q1 results suggest it is well-positioned to capitalize on UK economic resilience. With a dividend policy of 50% of attributable profit and buybacks on the horizon, investors are rewarded for its prudent risk management.

Conclusion

NatWest’s ability to grow profit while sidestepping tariff-related impairments underscores its strategic advantage as a domestically focused lender. With a fortress balance sheet, disciplined cost management, and a clear roadmap for capital returns, the bank offers investors stability in uncertain times. While global trade risks persist, NatWest’s Q1 results—backed by a 13.8% CET1 ratio and 18.5% RoTE—signal that its domestic moat remains intact. For income-focused investors, its 50% dividend payout ratio and potential buybacks make it a compelling play on UK banking resilience.

As tariffs continue to cloud the outlook for global peers, NatWest’s results are a reminder that sometimes, the best defense is staying close to home.